You can go to any number of Investment Advisory or Financial Planning firms and find that they serve a broad range of clients with a broad range of goals:
1. From early investors saving for a first home
2. To mid-career investors investing simultaneously for their children’s college education and their own retirement
3. To businesses and business owners
4. To foundations
5. To estates
6. And also to retirees or those preparing for retirement.
At first glance this may seem like a great idea but in reality for a pre-retiree or retiree it’s best to use an adviser whose primary focus is on strategies that maximize the retirement experience.
Most of our clients are either retired or planning a transition to retirement. Prior to becoming a client, our first step is discovery. We discuss their retirement goals and review their tax returns, current assets, expected income streams in retirement like SS and pensions, their current insurance policies and estate documents. Our second step is to prepare and present a financial plan that will guide them through retirement. All of this is done before we undertake any asset management.
What are the unique issues retirees face?
1. Social Security — When and how best to take? This is times two for a couple. This is an evolving discussion as there were major changes in claiming strategies as a result of the Bipartisan Budget Act of 2015.
2. Pension Choices — Should you take a lump sum or a pension stream and if so, what kind of pension stream, single or joint and survivor? The best choice for you depends on many factors.
3. Your 401(k)s — Should you roll them into an IRA and how should that IRA be invested?
4. Employer stock in your 401(k) or an Employee Stock Ownership Plan — Is there any way to save taxes with this portion of your retirement? There is a specific tax strategy called NUA, Net Unrealized Appreciation, but determining if this is of benefit to you depends on your individual situation and some detailed tax analysis.
5. Roth conversions — Do you have opportunities to increase your tax free savings by making Roth conversions over time? Again this depends on your individual situation.
6. Beneficiaries — How do you coordinate between your estate and your IRAs?
7. Speaking of estates, retirees need to be encouraged, even pushed to have all their estate documents in order. This is especially true in regards to Powers of Attorney, in which you give a trusted individual power to handle your financial affairs should you become incapacitated.
8. Taxes – How do you place investments within your accounts to minimize federal taxes over your retirement? How important is it to keep your adjusted gross income below a certain threshold to avoid the Medicare premium surcharge?
9. Charitable Giving – What is the best way to give and reduce federal taxes?
These decisions need to be coordinated to have the most benefit. Rick Rodgers’ book The New Three Legged Stool contains case studies that reveal the impact these decisions have on retirement.
Creating a realistic retirement budget is critical when determining a financial plan. If you don’t know what you are spending, you can’t know what you may need. I suggest you track spending for several years prior to retirement and even try to live on your retirement spending amount for 6 months to a year to see if you have created a workable plan. This is one of the best ways to prepare for retirement and is something that everyone can do.